About a year ago, I ran a post asking how big a business referral network should be.  Steve Shue, always helpful, posted a comment with links to discussions about Dunbar Numbers.  Anthropologist Robin Dunbar hypothesized that a person could maintain around 150 stable relationships.  Other estimates from other studies generally fall in this order of magnitude, though electronic communications may increase the number.

I have thought about Dunbar Numbers ever since and have some observations about them.  First, definitions of “stable” may vary in different circumstances.  For example, an auditor may only count client relationships that last many years as stable, but a professional who does many small projects, say a competitive intelligence consultant, may describe some relationships that last less than five years with the same word.

Second, not all relationships in a network are stable.  We need to sort through several unstable relationships to find each one that becomes stable.  Because the competitive intelligence consultant has a higher turnover rate in his core, stable network, he needs a larger pool of total relationships than the auditor does, in order to winnow through enough unstable relationships to keep sufficient stable ones.  In my experience professionals with evergreen services generally don’t have networks as large as those who sell project work.

Third, when a person first deliberately starts to build a network, she must winnow through a large number of unstable relationships to do so.   Also, in my experience, people building a practice must actively work larger networks than those who are well established.

Fourth, we do not look for stability in every relationship.  It is quite possible to network with a person for a few months or years and then find that mutual benefit from doing so declines.  Networks are full of special cases for special purposes, such as the person an architect networks with to pursue work in a specific distant location once or twice in a career.

All of this is a long way of making the point that to have a good referral network, you probably need to know more people than you think you do.

Years ago, when trying with limited success to help my son with a math problem, I was reacquainted with the beauty of the deductive power of geometry.  Using deductive logic geometry builds from simple properties to complex theorems that explain spatial relationships.  The logic allows us to manipulate forms and objects to create buildings and infrastructure.

I felt that, similarly, deductive logic could be used to explain much of what is required to become a successful rainmaker.  The fundamental elements of rain making are also simple, but, as in geometry, they can be built into complex rules of client development that allow us to get new clients.  Here is a first stab at developing a deductive logic of rainmaking.

A. Basic Properties

1. You sell to people.
2. You can only sell to people you know.
3. To know someone you must first meet him.
4. It follows that the more people you meet, the better your chances of selling something.
5. People move around.
6. A client who moves from one client organization to another can help you open a new account.

B. Relationship Properties

1. The stronger your relationship with someone, the better your chances of selling something to him.
2. Since you can’t have a relationship with someone you don’t know, it follows from (A3) that the first step in starting a relationship is to meet the person.
3. Relationships, good or bad, are based on time together and mutual help.
4. Conversely, it’s hard to have a relationship with someone you never talk to.
5. The more time you spend with someone and the more you help each other, the stronger the relationship is.
6. The more people you know in an account, industry or function, they better you are able to help them.

C.  Good People Properties

1. Good people tend to do well.
2. The more good people you meet, the better your chances of making a sale.
3. It follows from (A5) and (C1) that good people move around.
4. It follows from (A6) and (C3) that good people can get you into a new account.
5. It follows from (A1), (B1), (B3) and (C1) that it is wise to talk to and help good people.
6. Good people tend to have influence with others, and so can introduce you to others and help you develop relationships with them.

D.  Marketing Properties

1. The goal of marketing is to help you meet people and develop relationships with them (by giving you reasons to contact them).
2. Marketing efforts that don’t do one of these two things are probably not worth the investment.

That is as far as I have gotten.  I suspect that a complete logic of rainmaking could be built with this process.   Does anyone one have any corrections or additions to these properties?

Professionals who have developed skill at selling work in their areas of expertise, often find it hard to sell a broad solution to a problem that extends into areas about which they know relatively little.  Yet, rainmakers do this all of the time.  In an earlier post, I described a change in mindset needed to become an adviser on broad sets of issues.  Clearly, a change in mindset is not sufficient.  The professional must learn to conduct a discussion about a broad business issue.  Used to having command of a subject, they often say that they don’t know what to say and ask about issues where they have limited expertise.  It is a legitimate concern.

When talking with a client in their areas of specialty, professionals ask relatively narrow questions.  Borrowing from Chomskian linguistics, I will call these surface questions.  The surface questions used to learn about a client’s desire to redesign her company’s pension program differ greatly from those required to learn about her need for a new headquarters or her need to make a merger or for any other specific problem.

However, regardless of the issue, surface questions in all specialties gather information in the same categories, such as information about the nature of the client’s issue, its source, its size, its complexity, its urgency, its risks and opportunities, and so forth.  With that understanding, it is relatively easy to construct questions, which I will refer to as deep questions, that are more generic in nature and that will allow a professional to converse with the client in areas that go beyond the professional’s area of detailed knowledge.

Here is a comparison of some surface questions with some deep ones.  For the surface questions I will assume that a location consultant is interviewing a client about moving its corporate headquarters.  The deep questions, of course, can handle a much broader set of issues.  Note that these are just sample questions, not a definitive list.  Also, keep in mind that the same question can be worded many ways.  For example, Why would that be a problem for you?  is essentially the same question as I can think of several reason why that would be a problem.  Which ones stand out to you?  I have chosen brief versions of most questions to make a point.  If you don’t like the specific words shown, see if you can reword the questions to make them more palatable.

To determine the nature of the problem:

• Surface Questions:  Why are you thinking of moving your corporate headquarters?  What kinds of talent are difficult to recruit at this location?  Why is being in a peripheral location problematic?
• Deep Questions:  What is it that you wanted to talk about?  What seems to be the issue?

To establish cause:

• Surface Question:  Why are you thinking of moving now?
• Deep Question:  How did the problem arise/develop?

To establish urgency:

• Surface Questions:  How soon does your lease expire?  If you continue to fall short in the number of researchers you recruit, how soon do you end up in competitive difficulties?
• Deep Questions:  What kind of time pressure are you under?  Why the rush?

To establish goals:

• Surface Question:  What do you want to accomplish from a move?
• Deep Question:  What does success look like?

Top establish size:

• Surface Questions:  How many people are based at the headquarters?  How do they break down by job type?  How many would you expect to move?  How many square feet do you occupy?  Do you expect space requirements to go up or down?
• Deep Questions:  How big is this issue?  How many people does it affect?

To establish scope:

• Surface Questions:  Is the current location under consideration or are you definitely going to move?  Would you consider a long distance or only a local move?  Are there certain other locations that must be considered?
• Deep Questions: What are its parameters?  What areas will be affected?  How broad a set of solutions are you willing to consider?

To establish risks:

• Surface Question:  What happens if word of the move leaks out prematurely?  What if insufficient members of the research team choose to transfer to the new location?  Are you subject to political pressures in making this choice?
• Deep Questions:  What are the risks?   What could go wrong?

To establish opportunities:

• Surface Questions:  If you move to a new location and your recruiting problem goes away, what difference will it make?  How would easier access to your customers help the business?
• Deep Questions:  What are the benefits of making the change?  How much would you gain from the change.

To establish barriers:

• Surface Questions:  Why are you considering staying put?  Why not explore alternatives directly with economic development authorities instead of working through a consultant?
• Deep Questions: What stands in your way?  Why are you considering doing this with external resources, rather than in house?

I could go on, but suspect the point is made.  Professionals who are used to showing off expertise in the questions they ask, sometimes fear deep questions are too general and so highlight their lack of content knowledge.  But clients almost always answer deep questions without hesitation.  When they are focused on talking about their problem, information that draws attention to the professional can be a distraction, even if that information is posed as a question.

Jenny, a young professional at a big firm, had spent four years in a specific practice area.  Because of her smarts and interpersonal skills, she was seen as having high potential for rapid advancement.  This assessment was confirmed when a senior executive at a client where she was working invited her into his office to talk about another issue he was facing.

Jenny quickly realized that the issue was outside of her area of specialty, though well within her firm’s capabilities.   After a ten minute conversation, she offered to identify the right person at the firm to help with the matter, but by the time she had done so and could get back on the executive’s schedule, he had found someone else to work with.

It is doubtful that the executive expected Jenny to have a ready-made solution to his problem; he knew what she specialized in.  He was, more-likely, looking for someone who understood his organization, could understand his problem, participate with him as a thought partner about it and marshal the right resources to help him.  If that was the case, Jenny didn’t demonstrate the confidence and technique to serve as this kind of trusted adviser.  She lost the opportunity to advance her relationship with the client and to provide him greater value by cross selling a number of her firm’s services.

This is a limitation of many narrow specialists, including many who are older and more experienced than Jenny.  They don’t know what to say and do when presented with a problem outside of their specialty, other than to off-load it to someone else as quickly as possible.

So, what are people in this position to do?  They need two things, the right mindset and good questioning technique.  I will address the first of these here and the second in a later post.

The mindsets of trusted advisers and specialist differ on several dimensions, including:

Goals:

• Specialist:  To prove my knowledge of the special characteristics and implications of the client’s problem.
• Trusted Adviser:  To help the client articulate his concern and its implications and bring him the resources that can help him solve it.

Role:

• Specialist:  Solver of the client’s problem.
• Trusted Adviser:  Thought partner, representative of the client’s interests and needs within your firm and with others who will assist in providing a solution, the one who marshals the right resources.

Method:

• Specialist:  Ask questions that, by their nature, reveal command of the specialty and allow scoping of the assignment in detail.
• Trusted Adviser:  Ask questions that help the client explain and develop his own thinking on the matter at hand by helping him amplify his own beliefs and judiciously challenging them.  When appropriate, empathize with the client showing a shared understanding of the stresses, costs and opportunities that he faces.

Resources:

• Specialist: Largely from within own practice
• Trusted Adviser: From wherever needed; inside the firm, inside the client organization or elsewhere

Duration:

• Specialist:  Often one, and seldom more than two or three conversations, prior to submitting a proposal.
• Trusted Adviser:  Often several conversations, in order to ensure that the right problem is being solved and the right resources applied.

Once you have the right mindset, you are ready to learn technique.

In an earlier post I posited that anyone who wants to cross selling his services in a professional services firm had best treat his colleagues like any other market.  Selling them is the first step in selling to their clients. You must meet with your colleagues, learn about their needs and their clients’ needs, help them understand how you can help meet these needs and then provide fantastic service to them, so demonstrating how attentive you will be to their clients.  In this context, returning a colleagues phone call promptly is every bit as important as returning one from a prospective client.

This, I think sound advice, but it isn’t a one-way street.  All members of a firm have responsibility for finding opportunities at their accounts for their colleagues.  Firm management must find ways to make everyone accountable for cross selling.  There are many tools for this, most noticeably compensating people for helping their colleagues win work.  But, in our experience, some of the simplest ways are often overlooked.

Take, for example, teaching the firm’s partners about the capabilities of practices they might introduce to their clients.  Typically, this is done by giving the practice head a podium to describe what his team can do.  In the worst cases, this is done over hours at an off-site meeting, with one presentation following another in mind-numbing monotony, and the listeners soon find their minds wandering.

Here are two alternatives to make the process more effective:

• Structure the session as an interview, rather than a presentation. Announce to the participants that they won’t learn anything about the featured practice, unless they ask about it.  Then, don’t allow the person seeking to cross sell his service to say anything, except in response to his colleagues questions.  If his colleagues aren’t interested or intelligent enough to ask good questions about the service, he is probably wasting his time anyway.  This puts the responsibility on the listeners to extract the information they need, keeping them engaged in the conversation.   You may want to provide a few sample questions to get the interview started.
• Try speed dating.  Start your monthly firm or office meeting by paring up partners from different practices to have a half-hour conversation about how they can help each other sell their services.  At the next meeting shuffle the pares, so that everyone spends time with someone new at each meeting.  Among other things, trust is more easily built in one-on-one conversations than in a presentation.

Cross selling, like selling professional services, requires lots of little acts like these on the way to landing the big assignment.

The most common reason for revenue collapses during the past two years has been market failure.  Clients reduced or stopped buying specific professional services.  As is typical during a recession for reasons I have described elsewhere, this happened suddenly.  One month a firm had more work than it could handle and numerous prospective assignments moving their way towards a sale.  The next, clients were cancelling projects and prospective assignments evaporated.
Now that the worst seems behind us, we would be wise to take lessons from this downturn to reduce the impact of the next one.  Prior to downturns, some professionals feel immune to revenue collapses for three reasons that prove to be unfounded:

1. My market is different:   In the late 1990s professionals selling services to the telecommunications industry argued that with the rate of increase in data communications, demand for their services would keep increasing for the foreseeable future.   They failed to realize that short term imbalances in supply and demand can create a short-term bust in a generally upward market.  Firms selling heavily to the healthcare industry, which had come through earlier recessions unscathed, took a beating in this one, when many hospitals cut their spending.
2. My client is really many clients:   All markets go up and down.  The classic way to reduce the impact of such swings is through diversification.  But we must be wary of false diversification.  Over the years I have heard professionals who were dependent on one client for most of their revenue claim that the client was so big and they were working in so many parts of it that it was the same as having many clients.  When several big financial institutions failed over the past two years, some professionals learned how untrue this was.
3. My firm already has a diverse client base:  Sometimes professionals believe they serve diverse markets, when they don’t.  A dot com consulting firm, whose three biggest clients were an airline, a credit card company and a hotel chain, went belly up after September 11, 2001, when travel nosedived, and all three clients canceled projects.  Management of another firm convinced themselves that their top three clients; a credit card company, an insurance company and a bank; were so different that the firm was effectively diversified.  In this downturn, they learned that a credit crunch crunches all lenders.

Always be skeptical of it-can’t-happen-to-us statements.

Many professional service firms have learned how quickly good times can turn to bad over the past year.   They are learning or relearning that developing business is something that must be done in good times, if you want to delay and minimize bad times like these.  Less often they realize that one source of their revenue implosion has been the failure of a single channel to market.  To reduce that risk in the future requires not just increased business activity, but a diversification of the channels through which business comes to them.  Now that a recovery is underway, it is a good time to do that.

Examples of channel failure include:

• The loss of a rainmaker who provides a disproportional share of a firm’s or practice’s new business.  This is the simplest and most common source of channel failure.
• The loss of a referral source who provides a disproportional share of the firm’s or practice’s new business.  A cost reduction consultant received all of his work from a turnaround manager.  When that person was forced into retirement, his sole source of business disappeared.
• The failure of education programs as a channel for new business.  Several consulting firms ran seminars on specific methods for dealing with corporate problems.  After the seminars some attendees would hire them for large engagements.  At first these seminars attracted high-level participants, but after time, more and more junior people entered the mix.  When senior people stopped coming to the seminars, lead flow declined and when even the junior people stopped coming to the seminars, there were no more leads.
• The failure of an internal referral channel.  There are many examples of this. The engineering studio of an architectural and engineering firm got all of its business from projects that originated with the firm’s architectural studios.  When architectural projects dried up, so did the engineering studios lead flow.  In later years the management of the studio developed personal relationships with client facilities managers, which gave them a second, less cyclical, direct-to-market channel.  Also, at the large accounting firms, the passage of the Sarbanes-Oxley Act reduced leads from audit partners to forensic accountant practices specializing in litigation support to zero overnight.  The litigation support consultants, who had relied entirely on audit partners for a steady flow of new cases, had to scramble to develop new channels.

Channel failure is surprisingly common and can be devastating, all the more so, because the single channel usually looks as if it will never cease to provide new business.  It almost all cases, its failure comes as a big surprise.

The best way to avoid the problem is to have multiple channels to market.   Any professional who relies on a single channel and who doesn’t know how to go out and generate business through multiple sources exposes himself to grave career risk.  But, I don’t really expect many people to recognize and act on this knowledge.  History shows that it is all too easy to become complacent and to ignore channel risk.  You do so at your peril.

In my last post I described how small firms can win against big ones by gaining special access to a client.  They can also win by delivering a compelling message.  To be compelling, it must represent something that clearly differentiates you from your large competitors.  Among the messages used this way are:

We do a better job, because this is the only thing that we do: A big competitor may be better known than you and have a stronger brand, but their brand is usually more diffused than yours, because it must encompass more services.  All big firms also have practices that don’t fit neatly within the brand they promote, and others that are clearly secondary in importance to the firms’ businesses.  This gives you the opportunity to differentiate your firm on the basis of your specialty.  This argument will only succeed, if specialization really makes a difference in your area of work.  You argue that because you don’t do anything else, you recruit, train, promote, reward and organize around just this kind of work.  This results in a more effective organization and better work producing better results for the client.  If you can back this argument up with specialized data bases, research, publications or other demonstrable differentiators, so much the better.

We do a better job, because we have fewer conflicts of interest.  The more services a firm has and the bigger it gets, the more likely it is to have potential conflicts of interest when serving a client.  Sometimes they are so severe that they are subject to regulation.  That happened to the big accounting firms which are now proscribed from serving as outsourced providers of an audit client’s internal accounting and bookkeeping functions, as a result of the Sarbanes Oxley Act.   Sometimes these potential conflicts draw sufficient heat that clients avoid them, even when not prohibited from doing so.  In recent times this has kept many companies from buying executive compensation services from the firms which do their pension and benefits work.  This provides opportunities for small, focused firms to replace them.  As another example, if a law firm that works for insurance companies also does insurance recovery work, it raises a fair question about potential conflicts of interest.  A firm specializing in insurance recovery and which doesn’t work for insurance companies can win business on that basis.

You will get better service because your business will be more important to us than it will be to a big firm.  A company that is a middling or small client to a big firm is likely to be a major account for yours.  This means it will get more of attention from your firm.  Your A Team will work the account, where a large competitor might assign a B or even a C team.  The client can get easy access to the head of the firm, if it wants to for any reason.  I know one small MEP (Mechanical, Electrical, Plumbing) consulting engineering firm, which specializes in small repair and renovation projects for large clients with big processing operations.  They are set up to complete these projects efficiently and profitably, whereas, for large competitors, the projects are often seen as a nuisance.  That they gladly take on small projects that others will do only begrudgingly wins work.

You will get a richer mix of talent from us, because we are less leveraged than big firms are, meaning fewer rookies working on your important assignment.  You aren’t expecting the client to pay for the education and development of junior team members, because the firm tends to hire experienced people.

We cost less, because we have less overhead.  Many small firms don’t compete on price.  But many others do and there is nothing shameful about doing so.  This works best if you are avoid giving the perception that you pay less, and so may attract less qualified people.  One consulting firm has grown rapidly by focusing on selling work within an easy commute from its offices.  Because travel costs for its consulting teams end up being much lower than for big firms which move huge teams from across the country to do an assignment, the total cost of their services is lower.

Winning against a big firm is challenging, but it sure feels good when you do

In a recent post, I mentioned that a debrief after a loss taught me that my small firm could compete against a big one and set me on the path to winning work that transformed my firm.  A reader, whose small firm competes frequently against big ones, asked me to elaborate on that subject.

A big firm has many advantages, when competing against a small one.  It spends more on marketing and does so many more engagements with so many more clients that it usually has a stronger brand.  The marketing team can help put together stunning proposals and presentations.  Big firms can devote more hours to a pursuit.  They have greater depth and breadth in their professional teams.  Offering multiple services, the big firm is more likely to have an established relationship with someone at the targeted account.  Professionals at big firms can point out that one-stop-shopping for an array of services lessens project management cost and complexity for the client, and that there are less likely to be gaps between services, a common frustration for clients who parcel out a project in pieces to multiple firms.  The list goes on.

Yet small firms do win against big ones and do it frequently.  Sometimes they win on access to key people in the client company.  I will review some of the special forms of access that they can benefit from in this post, and describe other ways they compete with big firms in the next.

If you can learn about a client’s need early, and get in front of the buyers quickly, before competitors do, at the very least you have the advantage of more time to learn about what the client wants and the potential to make your case more frequently.  At best, you can shut out competitors before they even realize the client has a need.  Here are some tips for gaining early access:

Tip #1: Seek to develop a referral relationship with people who sell to the same people you do.  Focus especially on those who compete with big firms in one area, but don’t compete with you.  If a client has a need for your services, such people are unlikely to refer a mutual competitor.  If they know and trust you, they will be happy to recommend you—and, of course, you should do the same for them.  I belong to a formal networking group made up of representatives mostly of small firms, will sell to professional service firms.  There are many such formal and informal networks.

You can also develop a relationship with competitors and their colleagues at large firms which may be conflicted out of the opportunity to work for a client, who would rather see the work go to a small firm, like yours, rather than to a firm which competes with them on many fronts.  Working with such people provides you with extra eyes and ears in the marketplace, identifying opportunities for you.

Tip #2: Figure out who wants you to win and see if they might have opportunities to introduce you to decision makers.  You can also get special access through former employers, colleagues, employees, because they want you to win.  Many small firms get started when the founder leaves a job at a company, but continues to work for it as an independent advisor.

Tip #3: Figure out what can you do that will give you special access.  It had best be something you like to do, because it will absorb large amounts of your time and energies.  Sometimes you can do something difficult for a large competitor to imitate that gets you access.  The founder of a small consulting firm I know is getting many meetings with senior executives.  They meet with him because his recently published book which captures their interest and because his professional meeting-getter knows how to use that interest to obtain meetings.  I have seen others gain access through organizations they found and promote, from a golf tournament to a full-fledged professional association.  These channels take a lot of work, but can deliver huge payoffs.   Most small firms that have grown to midsize have done so by investing heavily in some such vehicle.

Dwight Davies said the following to me long ago:

“At any given time there are three to five things that a company is working on that are driven by the board and CEO on down, and everyone owns a piece of them.  They’re not always the obvious things.  If you are talking to people about  one of those things, you’re helping.  If you are talking about anything else,  you’re on the outside and you’re selling.”

I think this is true wisdom.